Budget 2026 & The Racing Industry

As they say in the classics, there are decades when nothing happens, and then there are weeks when decades happen!

From a tax perspective, this pretty much sums up the 2026-2027 Federal Budget announced last night.

The tax content was plentiful, including seismic changes to taxation concessions like the 50% capital gains tax (CGT) discount, the negative gearing of assets and the new 30% taxation of trusts.

As per normal, I will focus this summary on the topics that are most relevant to the breeding and racing industry. Not just for their own horse industry operations, but for their other business and income activities.

1. Changes to the 50% CGT discount

Hobby breeders please pay special attention – these changes are a strong incentive to seek appropriate advice and possibly structure your activities as an income tax business.

This discount has been a popular addition to the CGT regime since it was introduced back in 1999.

This concession provides a 50% discount on the prima facie capital gain derived by residents. To qualify, the taxpayer must own the capital asset for at least 12 months. Only companies were not eligible for this concession on the sale of its capital assets.

The 50% CGT discount will be replaced by cost base indexation for assets held for at least 12 months. These changes apply to all CGT assets, including pre-CGT assets (more about this below), held by individuals, trusts and partnerships.

These changes do not apply to self-managed superannuation funds. If you’re pondering now owning horse investments, such as stallion shares and broodmares, in an SMSF to still access this concession, please ensure you seek proper advice as this strategy often breaches the “sole purpose test”.

Hobby owners and breeders now get few concessions under the CGT regime, the most common is that the disposal of a horse with a cost base of $10,000 and less (inc GST) is exempt from CGT when sold. Even this concession is dated given that it was introduced way back in 1995 – when horse purchase costs were nowhere near what they are today! Coupled with hobby horse capital losses being disregarded, the tax landscape for hobby ownership is very unfair and harsh.

A minimum tax rate of 30% will apply to real capital gains accruing from 1 July 2027 (with no impact until the income is realised). This will not affect people whose capital gains are already taxed at rates of at least 30%.

Transitional arrangements
For eligible CGT assets other than new residential properties:

• Assets purchased and sold prior to 1 July 2027 – no changes in arrangements.

Thankfully, these changes are not retrospective and don’t relate to hobby horse disposals contracted before 1 July 2027.

• Assets purchased after 1 July 2027 – will be treated wholly under the new arrangements.
• Assets owned prior to 1 July 2027 and sold after 1 July 2027 – will be treated under current arrangements on gains made prior to this date, and under the new arrangements for gains made after this date (with no impact until gains are realised).

2. Pre-CGT assets to be taxed

Now, not many saw this coming.

This change is well worth noting as many breeders are operating on properties that were acquired by the family well before 19 September 1985.

Under the existing CGT regime, a capital asset is generally only subject to CGT if acquired on or after 19 September 1985.

As noted above, from 1 July 2027, these pre-CGT assets are subject to CGT upon disposal.

For the purpose of determining the capital gain on these assets, the assets value will be determined by the taxpayer, who can either:

• seek a valuation of the asset as at 1 July 2027, which will include using quoted prices for assets such as shares; or
• use a specified apportionment formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.

Before this intended change, the only occasion where there would be CGT relating to pre-CGT land, was for a capital improvement made on or after CGT started that can be a separate taxable asset if, at the time you dispose of the property, the improvement’s cost base is both:

1. more than the “improvement threshold” for that income year; and
2. more than 5% of the capital proceeds from the disposal

For instance, to meet the above condition 1, if a new employee facility is built on pre-CGT farming land, that facility could be subject to CGT if, in the year of disposal, the cost of the improvements is more than the “improvements threshold”. For a disposal in 2026, the threshold is $187,962. Please note that only the facility would be subject to CGT, not the pre-CGT land it sits on.

From 1 July 2027, the employee facility and pre-CGT land would be subject to CGT.

3. Company “loss carry back” is back

Many breeding and racing operations, that are operated out of companies, incur losses, especially in their first few years of trading. Unforeseen events (e.g., drought, viruses, paddock accidents, market fragility etc) are often the reason for these losses, even for companies with a strong history of profits.

It can be frustrating for shareholders of these companies, companies that have paid significant tax for many years, to incur a random loss yet not be able to use it until future profits are derived. The loss carry back rules rectifies this problem.

From 1 July 2026, companies with turnover of up to $1 billion will be able to use their current year tax losses to claim a refund for the tax paid in the prior two income years. Loss carry back will apply to revenue losses only and will be limited by a company’s franking account balance.

This will benefit around 85,000 companies, with the majority being small businesses. For small businesses experiencing temporary losses, including where they are making investments to grow, this means additional cash flow to help fund their operations, wages and investments and return to profitability.

From 2028-29, small start-ups in their first two years of operation will be able to get a refund for tax losses, up to the amount of Fringe Benefits Tax and withholding tax paid on employee wage.

4. 30% minimum tax on discretionary trusts

Many breeders, mainly for reasons of asset protection, tax efficiency and succession planning, run their business using a family discretionary trust.

It was announced last night that the Government is introducing a 30 per cent minimum tax on discretionary trusts from 1 July 2028. This proposal has been threatened for many years, last night it actually came to fruition.

Here’s the good news though – primary production income, which is the type derived by a breeding business, is excluded from this new 30% minimum tax. We hope this current exclusion gets finally legislated through Parliament!

This exclusion certainly incentivises breeders to keep using trusts and, importantly, should not dissuade hobby trust breeders from converting their existing hobby breeding to an income tax business within their trust. However special care will need to be had in monitoring this as it is ONLY primary production income that is excluded.

As I noted above, the removal of the 50% CGT discount is another strong incentive for hobby breeders to take their horse breeding to another level and seek income tax business status.

For non-primary production income, the tax will be paid by the trustee as it is the trustee who controls distributions. Beneficiaries will still need to declare their trust income in their tax returns, but beneficiaries, other than corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.

The inequity in this new initiative stems from corporate beneficiaries not being able to claim back, as a credit, the 30% tax paid by the trustee. In effect, they are double taxed.

The Government believes that the introduction of a 30 per cent minimum rate will mean a “fairer rate of tax paid” on discretionary trust income, better aligning the tax rate on trust income with the tax rates paid by workers.

5. Negative gearing limitation on residential properties

Many of our Baumgartners clients utilise negative gearing, many of whom are also active in the racing industry. I comment on these new negative gearing changes with a very heavy heart!

Per current arrangements, losses from a rental property can be used to reduce other forms of taxable income (e.g. salary and wages).

From 1 July 2027, losses related to existing residential investment properties purchased from 7:30pm AEST 12 May 2026 will only be deductible against other income from residential properties, including capital gains. Commercial properties are excluded from this new initiative.

However, when an investor has excess losses, i.e. the property is negatively geared, they will be able to carry forward that excess to offset residential property income in future years. Enabling losses to be carried forward ensures investors remain able to claim a deduction in the future for costs such as maintenance. If there are still unused excess losses at the time of disposal, these can be used to reduce the capital gain on the property.

These changes will apply to individuals, partnerships, companies and most trusts. Widely held trusts (for example, most managed investment trusts) and superannuation funds (including SMSFs) will be excluded.

Please do not hesitate to contact the writer if you wish for me to clarify or expand on any of the matters raised in this article.